A former trucking exec and engineer, Derek Kaufman predicts seven-buck-a-gallon diesel is going to force big changes on this industry, sooner not later.

Derek Kaufman has lived most of his life believing that the power of technology can overcome all obstacles. While still a practicing progressive, the president of Michigan-based product and technology marketing firm C3 Network now considers himself somewhat of a “pessimistic innovationist.”

So what’s the issue that’s got his guard up these days? It’s fuel — and the cost of it in North America over the next five to 10 years. Kaufman, who’s held senior executive roles at construction truckmaker Euclid Inc., Freightliner Trucks, Hino, and who was president of Diesel Technology at Penske Corp., is predicting an impending energy crisis that most North American markets aren’t prepared to handle.

Earlier this year Kaufman floored a room full of truck manufacturers and component suppliers at the Heavy Duty Dialogue in Las Vegas when he said diesel would rise to $5 or $7 a gallon in the not-too-distant future. He then told them it was in part up to them and their customers to mitigate the impact by dramatically reducing oil consumption. In this exclusive follow up interview with Today’s Trucking, Kaufman explains the why’s and how’s of overhauling the way we do shipping and trucking.

Today’s Trucking: You started your speech at HD Dialogue earlier this year by saying there were basically two kinds of people. Those who like Neil Diamond and those that don’t. I agree — there are no nuances when it comes to Neil. But more importantly you said there were two other camps as well, one made up of innovationists and one for doomsayers. What is each’s argument when it comes to the future of oil?

Derek Kaufman: Basically, the innovationist will say ‘don’t worry because there’s plenty of oil out there, it’s just a little harder to get to right now. We’ll find it and in the meantime, coming up behind is hydrogen, which will be our primary energy source and we’ll be able to tell the boys at OPEC to ‘go pound sand.’ For the doomsayers it’s not a question whether there’s oil out there. It’s that it won’t be economical to get to and that the production is going to peak and go downhill, at which point we’ll have a 10-to-12-year period of really rough sledding.

TT: Which side of the line do you stand on?

DK: I have always been, and still am, an innovationist because I’m educated as an engineer and second because I’ve seen doomsayers squashed by technology before. But now I’m just slightly a more pessimistic one. I’m starting to connect the dots and see how seriously we need to take oil-consumption reduction.

TT: Why do you think when it comes to oil, the doomsayers’ arguments won’t hit a reality wall like Y2K or the Great Depression of 1995? On what triggers will this oil crisis scenario play out?

DK: The doomsayers would say the following: One. The US dollar will decline in value as it is manipulated by the Chinese. Foreign oil suppliers will increase prices to offset the declining value of the dollar in which oil is currently priced. The price of gold, which in a few months has moved from $280 to $540 an ounce, is a real indicator of world market uneasiness.

Two. The Saudi Royal Family will be attacked from within the country — leading to further unrest in the area and resulting in major interruptions in oil supply. By the way, an attack on a Saudi oil production facility happened recently. They didn’t succeed this time but they might the next.

Three. The world’s network of crude oil pipelines is now operating at virtually 100-percent capacity as is the world tanker system, which puts upward pressure on prices.

Four. The use of hydrogen and similar technologies will be exposed for what they are-a 15-to-20-year technological mountain that basically substitutes one oil use-burning it for fuel and lubrication-for another-the production of hydrogen.

It’s time to change the way we do shipping, says Derek Kaufman

TT: And it’s on this last point where you part company with your fellow innovationists?

DK: I’m not saying those technologies won’t work. I’m a proponent of hydrogen and ethanol. But when you begin to add up what you need to do it, there’s a lot of technological work to get done. Therefore, our lack of past policies now positions us in the 10-to-20-year period where we can’t ramp up new technologies fast enough to avoid basically fighting for oil in the short term.

TT: On point number two. Isn’t the dependence on Mid-East oil overstated when Alberta is North America’s largest supplier?

DK: Well, the Canadian fields are going to get very popular all around the world aren’t they? Who assumes that we will be first in line? China is already buying and hoarding 60 percent of the world’s commodities and in the last five years has doubled oil demand to seven million barrels per day. So if you have a major disruption in the Mid-East and you have to recast the entire supply relationships, who’s to say how all the players will play the game?

TT: What kind of costs at the pump can we expect?

DK: This industry should brace for four, five, six, or even seven-dollar-a-gallon diesel over the next five years or so. But whether you believe this will all happen or don’t, we ought to get a whole lot more serious about conserving every drop of oil we can. The worst that can happen is that we are totally wrong and prices come way down because demand flattens.

TT: So, with the thought of six-buck diesel and no way for anyone in the supply chain to absorb that cost that quickly, what can industry do?

DK: As I said, we’ll be burning propane and natural gas; biodiesel will take hold; hybrids might get closer to a decent ROI; and hydrogen will show up. But I think there are several other areas we should focus on. Here’s a few:

TACTICAL TRIBOLOGY

TT: That sounds like a high-school math course that, had I taken it, would have no doubt failed.

DK: This means that those friction-reducing additives that have long resided in the margins of our industry are going to be replaced with higher-tech solutions — not low ash or Teflon — but Boron oxides, which, unlike a lot of additives of the past like Teflon equivalents or other hydrocarbon chains that didn’t really work, dramatically reduce friction. Think about all the friction in our businesses, be it vehicles, machines, or tools. If you reduce your friction, you reduce your energy consumption too.

The other part of this is the creation of a soot sensor, which can tell you what your soot level is and then will do an algorithm that can tell you what viscosity is, which can determine what drag the oil represents. With new DPF engines and EGR — which have an increase in soot levels that are suspended in oil — it’s more important than ever to be aware of viscosity and drag.

INVENTORY EXCLUSIVITY TO INVENTORY INCLUSIVITY

TT: Explain how industry needs to evolve from restricted access warehousing to a more open wired inventory pool.

DK: For most of our lives we’ve produced service-repair parts, shipped them to a central distribution centre, and then shipped them either to jobbers or straight dealers. Just think about the multiple inventories of the same part that we have through a system. We use oil to produce it, we have to ship it, and use oil for that. We FedEx a single part overnight but there it sits a mile away from us and we don’t even know because we have no visibility. Well, at six bucks a gallon you can’t do that anymore. You might, but the price is now more than the part itself.

With RFID chips embedded in every part that’s shipped and then connected to a Wi-Max grid accessed by anyone over the Internet, we’ll have a much better vision of the entire map of what’s in the field. How do you access inventory records? You’ll Google them like anything else you want to find. We need a mindset change of industry working more openly. Inventory is two things — it’s cash sitting there and it’s energy sitting there.

DOCK-O-RAMA

TT: I can’t think of a better site for lost energy and efficiency than the loading dock. Can we change the way we do shipping?

DK: I’ve seen what lean manufacturing can do when you really understand how to lay things out and get the most productivity you can out of a human interaction through a system. But there are some pockets that are nowhere near that, and the shipping dock is kind of the next one up. The physical aspect of being ready for that truck to come in and load it is not where we need it to be.

A driver comes in; he waits an hour and idles the whole time. He slowly backs in the dock, he’s still idling. Someone with a forklift loads the trailer with multiple passes. I mean, people talk about low hanging fruit — at shipping docks you’re walking on the grapes.

TT: So ideally, we’d be applying a sort of science to metering queues — like just-in-sequence to the shipping dock?

DK: Exactly. It’s about creating a sophisticated dance. You got this truck coming in; so I’m going to have stuff pre-palletized; and it’s going to go on or off in sequence. You could have drive-by side loading. In Japan, for example, you have all these butterfly trailers.

The truck pulls in, the driver sits in the cab. This flurry of activity happens on either side of the truck, and the next thing you know it’s loaded and the thing’s gone. I understand a lot of people are landlocked and can’t convert their building, but going forward, why can’t we start doing it like this? Also, counting total dock time as part of allowable driving hours will provide the final push to attend to this fuel waster.

TT: Isn’t it true however, that many truckers and truckmakers are busy worrying about EPA’s current mandates rather than taking on extra-curricular innovation?

DK: Yes. You call on people to talk about a very significant fuel economy gain, and you’re told that they have all their engineering talent tied up in making sure they’re going to make regulations. I understand that, but it’s the law of unintended consequences.

TT: As you know, here in Canada the major association is trying to get a speed limiter law passed and so far the Americans seem interested in a similar initiative. You buying what they’re selling?

DK: Not really. I think more effort should be spent in other areas. Besides, if you think of all the duty cycles a truck can run, mandatory speed limitations may make great sense in one run, but not in another. Having the right amount of power in a certain area might suggest that you let the truck run up to speed.

TT: How much power do truckers need these days? If the answer on Jeopardy was ‘Things Truckers Can Do Without’ what would the question be?

DK: The 625-hp engine. Why would companies be coming out with a 625-hp engine right now? It doesn’t make sense. It’s shortsighted, short-term targeting to a demographic in the market that thinks it wants more power. Basically, I’m calling for the companies in truck manufacturing to have a conviction instead of always going for a consensus. It’s time for the industry to lead energy conservation by example — by the way — it’s good business too.